Market Wrap: Cryptos Decline as FOMC Delivers Expected Rate Hike

Market Wrap: Cryptos Decline as FOMC Delivers Expected Rate Hike

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Bitcoin traded lower on Wednesday following the Federal Open Market Committee (FOMC) interest rate decision. Price momentum accelerated as U.S. markets opened and maintained trajectory following the expected interest rate decision.

  • Bitcoin (BTC) fell 1%, and still sits below $19,000. During the 13:00 UTC (9:00 a.m. ET ) hour Wednesday, the price of bitcoin turned sharply higher, on above-average volume, unlike the same time on Tuesday.

  • Ether (ETH) decreased 3%, falling below $1,300 and also losing additional ground from Tuesday’s loss. Wednesday’s gain marks the second consecutive day that ether prices have turned negative. (Note: While cryptocurrency markets technically never close, Market Wrap compares the current 24-hour candle with the prior 24-hour candle.)

The CoinDesk Market Index (CMI), a broad-based market index that measures performance across a basket of cryptocurrencies, rose 1.65%

Economic Calendar: The U.S. central bank announced a 75 basis point (BPS) hike as expected, marking the fifth consecutive rate hike since March 17.

The Summary of Economic projections, expectations for a specific basket of economic factors, indicated that economic growth will be tepid moving forward.

Contained within the summary is the “dot-plot,” which showed that additional interest rate hikes are on the horizon

U.S. Equities: Traditional equities traded lower, with the Dow Jones Industrial Average (DJIA), tech-heavy Nasdaq composite and S&P 500 declining 1.7%, 1.8% and 1.7%, respectively.

Commodities: In energy markets, WTI crude oil declined 0.7% while natural gas rose 0.8%. European Brent crude fell 0.4%, while gasoline (RBOB) rose 1.5%. In metals, gold rose 0.7%, while copper futures fell 1.8%

The Dollar Index (DXY) rose 1%, trading higher along with bitcoin, despite their general inverse relationship to each other.

Bitcoin (BTC): $18,658 −1.7%

Ether (ETH): $1,272 −5.5%

CoinDesk Market Index (CMI): $931 −1.5%

S&P 500 daily close: 3,789.93 −1.7%

Gold: $1,682 per troy ounce +1.4%

Ten-year Treasury yield daily close: 3.51% −0.06

Bitcoin, ether and gold prices are taken at approximately 4pm New York time. Bitcoin is the CoinDesk Bitcoin Price Index (XBX); Ether is the CoinDesk Ether Price Index (ETX); Gold is the COMEX spot price. Information about CoinDesk Indices can be found at coindesk.com/indices.

BTC falls, and the outlook is challenging

Bitcoin traded lower on Tuesday as investors reacted to a widely expected 75 basis point (BPS) interest rate hike by the Federal Open Market Committee, the rate-setting section of the Federal Reserve. Investors’ optimism was growing even before the announcement at the end of the FOMC meeting Wednesday. BTC’s hourly chart showed five consecutive hours of positive movement, leading into the start of the U.S. trading day.

Bitcoin’s price rose as high as $19,900 before reversing course to current levels.

So what’s next for bitcoin? The issues driving the Fed’s continued monetary hawkishness was more important than the size of the interest rate hike. Consider the following points specific to BTC’s outlook.

  • The Fed stated plainly that inflation remains high, and the central bank is committed to returning inflation to its 2%. The bank barely mentioned the possibility of improvement in 2022.

  • The federal funds rate is projected to increase to 4.4% by year’s end and close to 4.6% by the end of 2023, indicating equally aggressive rate hikes through the remainder of this year.

  • Expectations for GDP growth range from 0.5% to 1.5% for 2023 and 1.4% to 2% for 2024, according to the FOMC.

Estimates for higher, future interest rates and muted expectations for economic growth, are likely to present a hurdle for asset valuations. Thus, today’s report implies that bitcoin and other risk assets will continue to face challenges.

CoinDesk - Unknown

Bitcoin/U.S. dollar daily chart along with its Bollinger Bands (Glenn Williams Jr./TradingView)

Technically, BTC looks poised to trade flat, which has become an ongoing theme. As mentioned in Tuesday’s Market Wrap, BTC is trading relatively close to its “point of control” (POC), signaling that its price is close to where market participants have largely agreed that it should trade since January.

Opportunities exist when an asset’s price deviates sharply from its perceived value, or new information presents itself that has not been incorporated in the price.

An example of this would be the 10% decline that occurred on Sept. 13 as the price of BTC exceeded bitcoin’s point of control. Currently, the 2.5% spread between current price and a POC of $19,754, doesn’t offer a compelling enough opportunity, absent the emergence of a catalyst.

Applying Bollinger Bands to BTC offers a similar view. Bollinger Bands measure an asset’s 20-day moving average, and plots two standard deviations above and below that average. Statistically, an asset’s price is expected to remain within two standard deviations of its average, 95% of the time.

An asset’s price breaching the upper or lower limit of its Bollinger Band often signals the price has moved too far in one direction. BTC’s current price in comparison with its 20-day average implies that it is trading close to fair value for the moment.

  • Strengthening Ether-Nasdaq Correlation Muddles Post-Merge Bullish Plays: Cumberland: The Merge has skewed demand-supply dynamics in favor of the bulls. But the strengthening correlation with Nasdaq means big gains may remain elusive in case of broad based risk aversion. Read more here.

  • Evaluating Ethereum: One Week After the Merge: From validators to issuance to fees, here’s what Ethereum looks like now that the post-Merge dust is settling. Read more here.

  • Listen 🎧: Today’s “CoinDesk Markets Daily” podcast discusses the latest market movements and a look at why Ethereum PoW is not an Ethereum competitor.

Biggest Gainers

Biggest Losers

Sector classifications are provided via the Digital Asset Classification Standard (DACS), developed by CoinDesk Indices to provide a reliable, comprehensive and standardized classification system for digital assets. The CoinDesk Market Index (CMI) is a broad-based index designed to measure the market capitalization weighted performance of the digital asset market subject to minimum trading and exchange eligibility requirements.


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